Counterparties: 1 Pinterest=1.5 Instagrams

As Facebook, at eight years of age, prepares for its landmark IPO, two-year-old Pinterest has managed to raise $100 million at a jaw-dropping $1 billion valuation. If you’re scoring at home, 1 Pinterest = 1.5 Instagrams.

Both Pinterest and Instagram are perfect examples of the delicate art of valuing companies with little to no revenue. This conundrum also faced investors in Tumblr, Foursquare and Twitter. Of course, when you have zero revenue, current revenue multiples are not the right place to turn to justify an investment. As the WSJ‘s Dennis Berman put it:

If you’re looking for a different metric for valuing companies that don’t make money, VC Marc Andreessen recently said that he doesn’t value startups by their revenue, but instead looks at how much they’re worth to a larger company. Sometimes that’s active, as in Google finding a way to monetize YouTube, and sometimes it’s defensive, as in Facebook buying Instagram to keep it out of the hands of Twitter. Either way, the startup’s value is based on being able to sell to someone huge – the kind of exit that VCs in general, and Andreessen in particular, love.

If valuing a no-revenue company remains a challenge, the lead investor Pinterest chose, Japanese e-commerce company Rakuten, seems to have a clear idea of how it wants to earn its return. Pinterest users will be able to buy products they see pinned directly from Rakuten, and the company’s shoppers will have their Rakuten IDs integrated into Pinterest. And this is no small matter: Techcrunch notes that 75% of Japanese Internet users, 80 million people, have a Rakuten ID. In fact, there’s some evidence that Pinterest users are already buying things they see on the site.

This model, Rakuten hopes, will help it wake up its “sleeping customers,” and it may make Pinterest the rare tech startup that isn’t going for acquisition or bust. Pinterest’s move to attract a large strategic partner before acquisition is a test case for Andreessen’s theory that making money, at least in today’s tech world, may not matter. Andreessen, though, wins either way: His firm was a small participant in the round. – Ben Walsh